[Federal Register Volume 69, Number 139 (Wednesday, July 21, 2004)]
[Notices]
[Pages 43649-43650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16556]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50010; File No. SR-ISE-2004-25]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
International Securities Exchange, Inc., Relating to the Extension of 
the Linkage Fee Pilot Program

July 13, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2004, the International Securities Exchange, Inc. (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which items have been substantially prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and is 
approving the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to extend until July 31, 2005 the current 
pilot program regarding transaction fees charged for trades executed 
through the intermarket options linkage (``Linkage''). Currently 
pending before the Commission is a filing to make such fees 
permanent.\3\
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    \3\ See File No. SR-ISE-2003-30 (the ``Permanent Fee Filing'').
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    The proposed fee schedule is available at the Exchange and at the 
Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the ISE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to extend for one year 
the pilot program establishing ISE fees for Principal (``P'') Orders 
and Principal Acting as Agent (``P/A'') Orders executed through 
Linkage. The fees currently are effective for a pilot program scheduled 
to expire on July 31, 2004,\4\ and this filing would extend the fees 
through July 31, 2005. The three fees the ISE charges for P and P/A 
orders are: the basic execution fees for trading on the ISE, which 
range from $.12 to $.21 per contract/side depending on average daily 
trading volume on the Exchange; a $.10 surcharge per contract/side for 
trading certain licensed products; and a $.03 comparison fee contract/
side (collectively ``Linkage fees''). The Exchange represents that 
these are the same fees that all ISE Members pay for non-customer 
transactions executed on the Exchange. The ISE does not charge for the 
execution of Satisfaction Orders sent through Linkage and is not 
proposing to charge for such orders.
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    \4\ See Securities Exchange Act Release No. 49009 (December 30, 
2003), 69 FR 714 (January 6, 2004) (SR-ISE-2003-39).
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    In the Permanent Fee Filing, the ISE discusses in detail the 
reasoning why it believes it is appropriate to charge fees for P and P/
A Orders executed through Linkage. In sum, the ISE argues that market 
makers on competing exchanges can match a better price on the ISE; they 
are never obligated to send orders to the ISE through Linkage. However, 
if such market makers do seek the ISE's liquidity, whether through 
conventional orders or through the use of P or P/A Orders, the Exchange 
believes it is appropriate to charge ISE Members the same fees levied 
on other non-customer orders. The ISE appreciates that there has been 
limited experience with Linkage and that the Commission is continuing 
to study Linkage in general and the effect of fees on trades executed 
through Linkage. Thus, this filing would extend the status quo for 
ISE's Linkage fees for one year while the Commission considers the 
Permanent Fee Filing.
2. Statutory Basis
    The ISE believes that the basis for this proposed rule change is 
the requirement under Section 6(b)(4) of the Act \5\ that an exchange 
provide for the equitable allocation of reasonable dues, fees and other 
charges among its members and other persons using its facilities. As 
discussed in more detail above, the ISE believes that this proposed 
rule change will equitably allocate fees by having all non-customer 
users of ISE transaction services pay the same fees. If the ISE were 
not to charge Linkage fees, the ISE believes that the Exchange's fee 
would not be equitable, in that ISE Members would be subsidizing the 
trading of their competitors, all of whom access the same trading 
services.
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    \5\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Moreover, the ISE believes that 
failing to adopt the proposed rule change would impose a burden on 
competition by requiring ISE Members to subsidize the trading of their 
competitors.

[[Page 43650]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-ISE-2004-25 on the subject line.

Paper comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-ISE-2004-25. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal offices of the 
ISE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-ISE-
2004-25 and should be submitted on or before August 11, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder, applicable to a national securities 
exchange,\6\ and, in particular, with the requirements of Section 6(b) 
of the Act \7\ and the rules and regulations thereunder. The Commission 
finds that the proposed rule change is consistent with Section 6(b)(4) 
of the Act,\8\ which requires that the rules of the Exchange provide 
for the equitable allocation or reasonable dues, fees and other charges 
among its members and other persons using its facilities. The 
Commission believes that the extension of the Linkage fee pilot until 
July 31, 2005 will give the Exchange and the Commission further 
opportunity to evaluate whether such fees are appropriate.
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    \6\ In approving this rule, the Commission notes that it has 
considered its impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\9\ for approving the proposed rule change prior to the 
thirtieth day after the date of publication of the notice of the filing 
thereof in the Federal Register. The Commission believes that granting 
accelerated approval will preserve the Exchange's existing pilot 
program for Linkage fees without interruption as the ISE and the 
Commission further consider the appropriateness of Linkage fees.
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    \9\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act 
\10\ that the proposed rule change (SR-ISE-2004-25) is hereby approved 
on an accelerated basis for a pilot period to expire on July 31, 2005.
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    \10\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16556 Filed 7-20-04; 8:45 am]
BILLING CODE 8010-01-P